When you start thinking about owning your own business, one of the first decisions you’ll have to make is whether to open a franchise, open a corporate-owned store, or start an independent business. If you’ve ruled out an independent business, you’ll want to understand the difference between a franchise vs. corporate-owned store. There are good reasons to choose either, as well as drawbacks to be aware of. Having the right information can help you make a confident choice and get on the path to success.

Let’s take a closer look at the franchise vs. corporate choice.

Understanding the Difference Between a Franchise and a Corporation

At first glance, it may seem like franchising and owning a corporate store are the same thing, but they’re not. Although the models are similar, the differences come down to the levels of both risk and control.

With a franchise, you operate under the franchisor’s name and have access to their systems, trade secrets, products, and services. They’ll train you on how to work within their system and provide operational support as you go along. You’ll be able to leverage their brand reputation to build your customer base faster. In exchange, you’re expected to follow all of their guidelines and pay ongoing fees in order to maintain the relationship. While this may lower your earnings, the support and resources you receive from the franchisor make it a lower-risk investment.

When you own a corporate-owned business, you have total freedom over how the business runs. You are able to create your own brand identity, build your own business model, and provide your own services. Those who own company-owned businesses also aren’t required to pay royalties or fees, meaning you’ll be able to retain all of your profits. The autonomy can be appealing if you’re interested in doing things your own way, but without the support from your parent company, you may find that the risk is as high as starting an independent business.

Franchise vs. Corporation: Pros and Cons

Digging a little deeper into these essential differences can help you decide whether a franchise vs. corporate-owned store is the best choice for you. Here are four factors to keep in mind.

1. Autonomy

Those who ultimately choose to open a corporate-owned store generally do so because they want more freedom over how the business is run. Corporate-owned store owners have complete autonomy over their business model, strategy, services, and brand identity.

Though franchise owners have a great deal of flexibility in regard to the day-to-day operations of their franchise location, they are required by the terms of their franchise agreement to follow the brand’s guidelines. This may limit creativity, but franchise owners find that the support they receive in return is well worth it.

2. Scalability

Most franchisors have built their business model to optimize scalability. In a nutshell, this means your business should be able to grow faster than your operating costs. Since franchise owners benefit from stable leadership, consistent strategy, and strong brand messaging, it’s often easier to scale up a franchise than a corporate-owned business. The guesswork involved in owning a corporate-owned business can limit your ability to scale.

3. Operational Risks

There are several reasons why franchise owners are required to follow the franchisor’s operational procedures, but one is that it protects both franchisor and franchisee from reputational hits. Over time, your franchisor has learned what works and what doesn’t. Although accidents can always happen, following their business model, systems, and procedures generally keeps operations running smoothly.

The lack of a clear blueprint involved in running a corporate-owned business can lead to costly mistakes, with consequences ranging from bad press to legal action.

4. Investment Risks

Hidden fees can cause trouble for even the savviest budgeters. When you choose a franchise, your franchisor is required by law to share a breakdown of the initial investment cost and ongoing fees. Franchisors also set minimum net worth, liquid asset, and working capital requirements to ensure you’re in the right financial position to invest in their brand. This transparency not only makes it easier to budget; it may also help you achieve ROI sooner.

When you open a corporate-owned store, this information will not be laid out for you, meaning that you’ll be doing a lot of guesswork to start. Without an established business model, clear financial requirements, or the backing of a trusted brand, you may find that the risk of failure is higher.

Should I Start a Franchise or My Own Company?

The right choice for you may come down to risk tolerance. Put simply, opening a corporate-owned business is a significantly riskier venture than opening a franchise. It’s estimated that 20% of new businesses fail within the first two years of operation, 45% fail within five years, and 65% fail within 10. The U.S. Bureau of Labor Statistics notes that these figures have remained fairly stable over the last 30 years.

While there’s no way to completely eliminate the risk inherent in starting a business, franchising can provide you with a safer path to business ownership. In fact, a recent study found that 92% of new franchises remained open after two years of business and 85% remained open after five years. If stability is a priority for you, franchising is likely the better bet.

Home Franchise Concepts: Finding the Right Franchise Opportunity

Home Franchise Concepts is a leading franchisor in the home services space, with over 30 years in franchising. Our brands are the ideal choice for first-time and seasoned entrepreneurs alike. Home Franchise Concepts’ seasoned franchise advisors can guide you on your journey to franchise ownership. With our unparalleled training, business coaching, and marketing support, you can rest assured that you’re making a smart franchise investment with any one of our brands.

Ready to get started? Contact us today, and one of our franchise advisors will be in touch with more information and help you find the right franchise fit.